Monitoring the budget

The first results against budget may show that the business is not exactly on target. The budget then becomes a ‘dashboard’ to assess all the factors and make the necessary changes to reach goals. Variance analysis is used to identify differences between budgeted and actual figures. This can be demonstrated using the illustrative expenditure budget for UK Life.

Results better than or on budget are 'green' and represent no immediate problem. They may be worth investigation to understand new practices or to exploit new opportunities. Results that are only mildly outside expectations are 'amber'. These may need attention particularly if there is a worsening trend. Finally, there are the adverse (‘red’) results. Red areas demand immediate investigation and remedial action to bring performance back to budget. All results should be investigated based on the level of risk each deviation poses to meeting the overall business goals, but priority should be given to red areas.

Zurich Business Partners assist managers in understanding and explaining current performance by identifying the root causes of any deviations from the budget. They also look forward – known as forecasting – to assess how those deviations will affect the performance compared to the budget over the remainder of the period and in the context of overall objectives.

A deviation may be explained by an unforeseen event; it may be the beginning of a major adverse trend that requires a counter-strategy. Analysing recent trends can act as an ‘early warning’ system and may indicate how the business’ performance will evolve in the future.

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Zero-based budgeting	\|	Conclusion

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